United States Secretary of State Condoleezza Rice said on Wednesday she would reduce a funding request to Congress for Palestinian Authority Chairman Mahmoud Abbas' security forces due to concerns over how some funds would be spent.

Congress has held up since last month Rice's original $86 million request for Abbas' security forces after agreement was reached over a new Palestinian government, which includes Islamist Hamas as well as Abbas's moderate Fatah faction.

Several congressional members feared some money could reach Hamas, which the United States considers a terrorist group. Under U.S. law, taxpayer funds cannot go to such a group.

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Rice said she would soon make a new request to Congress outlining in detail how the money would be spent and providing assurances it would not get into the "wrong hands."

"It will request less money, precisely because some of the money that I would have requested I did not think I could fully account for," Rice told a House of Representatives Appropriations subcommittee.

She did not say how much money would be cut from the original request.

"I hope that is a sign for you that we take very seriously our responsibilities," she said. "I have no interest in having to come here one day and say, 'you know this funding did not end up in the right place.' I will do my very best," she told the committee.

But Rep. Steve Israel, a New York Democrat, said he was not sure the Bush administration could provide solid assurances the money would not reach Hamas.

"I still don't know how you can make that assurance," Israel told Rice.

The money, if approved by Congress, would help train Abbas' National Security Forces, the closest thing the Palestinians have to an army. There are an estimated 40,000 members, according to Palestinian estimates, although Western diplomats say the number of active forces
is about half that.

Rice is set to leave for the Middle East on Friday and will see both Prime Minister Ehud Olmert as well as Abbas to try and get both sides to move closer to reviving stagnant peace initiatives.

She conceded the new Palestinian unity government, which was sworn in last weekend, "has provided something of a challenge." But Rice said it was important for the United States to stay engaged.

She reiterated the U.S. policy that the administration would have contacts with members of the new government committed to recognizing Israel, agreeing to past Israeli-Palestinian accords and who renounced violence.

"We will of course continue to work with Abu Mazen [Abbas]," she said.

International aid to Palestinians grew in 2006 despite sanctions
International aid to the Palestinians grew from about $1 billion in 2005 to more than $1.2 billion in 2006, despite a boycott of the Islamic militant Hamas government, United Nations officials said Wednesday.

Much of it was emergency aid from Europe, the UN and the Arab world funneled to people outside the government in order to ease a humanitarian crisis largely triggered by the international sanctions imposed in the wake of Hamas' victory in the 2006 parliamentary elections.

Critics say the sanctions have cost the donors more money while causing long-term damage to the Palestinian economy.

In the past year, the Palestinians received more than $1.2 billion, compared to $1 billion in 2005, according to the UN Office for the Coordination of Humanitarian Affairs, or OCHA.

Mario Mariani, the head of the European emergency aid mechanism, said total European aid came to about $700 million in 2006, an increase of more than 30 percent from the year before.

Palestinian officials said it's a rough estimate, because it's not clear how much money came from the Arab world, particularly Iran, or was smuggled into Gaza in cash-stuffed suitcases by Hamas officials.

The aid was delivered less effectively because - in an attempt to bypass the Hamas government - it went to multiple recipients, including Abbas' office and Palestinians' personal bank accounts, rather than to the Treasury.

"More money was spent in a less coordinated manner," said Pierre Bessuges, OCHA's deputy director in the Palestinian areas.

Palestinian economists warn that some of the damage inflicted by the sanctions is irreversible, including the flight of investors, loss of trust in the economy and weakening of government institutions. Also, with aid restricted to averting a humanitarian crisis, development projects have largely been put on hold.

"There is no investment, nothing, zilch," said Bassim Khoury, president of the Palestinian Federation of Industries. "You are creating a country that is not sustainable in the future."

Israel is pushing for a continued boycott due to the platform of the newly formed Hamas-Fatah government, which does not abide by the international community's demands for the renunciation of violence and recognition of Israel.

Foreign Ministry spokesman Mark Regev said Wednesday, however, that Israeli officials "wholeheartedly support efforts by the international community to upgrade support to the Palestinian people."

Joel Toujas-Bernate of the International Monetary Fund said the shift from development aid to emergency assistance has cast some doubt about the medium and long-term growth prospects of the Palestinian economy.

Since the sanctions began, the international community has stopped most development projects and frozen aid to the PA, while Israel has withheld millions of dollars in tax transfers.

The UN had initially budgeted $216 million in 2006 on food distribution and ensuring basic services. After the sanctions took hold, the humanitarian appeal for 2006 was increased to $384 million. In 2007, the UN is seeking $454 million in emergency contributions for the Palestinians, Bessuges said. Only Sudan and Congo are ahead on that list, with $1.2 billion and $687 million, respectively.

The Arab world sent hundreds of millions of dollars, and the outgoing Hamas-backed finance minister, Samir Abu Eisha, said some $68 million were brought into Gaza in suitcases of cash by Hamas officials in 2006.

Yet despite the large amounts of money coming in, the Palestinian Gross Domestic Product dropped by 6.6 percent in 2006, according to George al-Abed, head of the Palestinian Monetary Fund.